Insights

Baker Tilly automotive dealership benchmark survey – 4th quarter 2013

On a quarterly basis, Baker Tilly conducts a benchmarking study of auto dealerships. Respondents to the most recent study were primarily dealerships located in the Upper Midwest. This whitepaper summarizes key data as of and for the four quarters ended December 31, 2013, with comparisons to the same period in 2012 and to the three quarters ended September 30, 2013. Amounts and percentages noted herein are representative of the average dealership in our survey, unless noted otherwise.

The bottom line

Overall, dealership profitability improved in 2013. Net income as a percentage of sales was 1.56%, compared to 1.33% for 2012. Improvements in dealership profitability were attributable to better gross margins in fixed operations.

Profitability dropped in the fourth quarter of both years, as our survey for the three quarters ended September 30 showed net income as a percentage of sales of 1.98% for 2013 and 1.55% for 2012. Eroding front-end grosses on new vehicle sales contributed to the fourth quarter decline. Average front-end grosses on new vehicle sales decreased another $12 per unit from $1,003 through September 30 to $991 as of December 31, 2013.

New vehicle sales

Industry-wide, new vehicle sales volumes are higher than last year. In a survey by Stephens, new unit sales through December 31, 2013 were 15.52 million versus 14.44 million last year, an increase of 7.5%. New vehicle sales continued to outpace used vehicle sales, increasing from a new-to-used ratio of 1.16 through the first three quarters of 2013 to 1.21 for the year. The sales mix is slightly stronger for new vehicles than a year ago, as the ratio of new to used vehicles sold was 1.17 for 2012.

The fourth quarter in both years saw new vehicle inventories balloon, and the average dealership continues to carry more new vehicle inventory than last year. The days’ supply in units was 117.6 days as of December 31, 2013, compared to 94.9 days as of September 30, 2013. For 2012, the days’ supply in units was 112.5 as of December 31 and 90.9 days as of September 30.

YTD gross profit per new unit retailed

Used vehicle sales

The average gross per retail unit sold was $1,482 for 2013, compared to $1,476 last year, which is a .4% increase. The fourth quarter of 2013 saw a slight decline, as the average gross per unit was $1,485 as of September 30.

The average dealership was carrying about the same used vehicle inventory as last year. The days’ supply in units as of December 31 was 93.1 days compared to 93.4 days last year. Used vehicle inventories increased in the fourth quarter, as the days’ supply as of September 30 was 91.4 days.

YTD gross profit per used unit retailed

Finance and insurance (F&I)

The F&I department’s improved performance through the first three quarters of 2013 continued through the end of the year. Net F&I income before compensation was up 7.9% for new vehicles and 5.9% for used vehicles. On a per retail unit sold basis, net F&I income before compensation was $777 for new vehicles and $594 for used vehicles.

Finance penetration rates are comparable to last year, averaging 67.1% for new vehicles and 56% for used vehicles. However, the decreases in extended service contract (ESC) penetration rates seen through the first three quarters continued through year-end. ESC penetration for the year was 39% and 36.7% for new and used vehicle sales, respectively. In contrast, the penetration rates were 39.9% and 37.4% for 2012.

Service

The service department was more productive compared to 2012. Although the average customer pay shop rate increased from $97.77 to $101.61 per hour, there was also an increase in labor hours per customer-pay repair order (RO) based on standard shop rates – from .94 hours for 2012 to 1.00 hours for 2013. The combination of an increased shop rate and more hours per customer pay RO resulted in a 15.4% increase in customer labor gross per technician per month compared to 2012.

Customer pay labor represented approximately 52% of service sales for 2013, compared to approximately 53% last year. The one-percentage point decrease in customer pay labor has been offset by a similar increase in warranty labor sales.

Although there has been a change in the mix of service work, it has not had a negative impact on the service department. Service gross profit was 66.8%, compared to 65.8% last year.

YTD service gross profit percentage

Parts

With the increase in service productivity, parts productivity is also up over last year. The average parts sales per counterperson per month increased 11.56% to $88,934. Parts gross profit remained strong during 2013, improving from 31.7% through three quarters to 32.1% for the year. The 2013 gross profit percentage is also up from 31% for 2012. The increase in gross profit percentage, along with increased productivity resulted in a 15.6% increase in the average parts gross per counterperson per month ($28,707 for 2013 versus $24,843 for 2012).

Parts inventory levels have remained stable, hovering around a 57 day supply as of December 31, 2013 and 2012.

Body Shop

The body shop department was also more productive this year, as evidenced by a 12.7% increase in total body shop gross per technician per month. However, a large part of this increase was attributable to internal labor sales, instead of customer pay labor, as internal labor sales accounted for 15.7% of total body shop sales, while this figure was 10.4% for 2012.

Conclusion

Profitability for 2013 was better than 2012; dealerships will need to find ways to maintain profitability (or minimize losses) during the first quarter in order to have similar results for 2014.